Thursday, 18 August 2022
Meet the JournalistsPremiumAucklandWellingtonCanterbury/South Island
CrimePoliticsHealthEducationEnvironment and ClimateNZ Herald FocusData journalismKāhu, Māori ContentPropertyWeather
Small BusinessOpinionPersonal FinanceEconomyBusiness TravelCapital Markets
Politics
Premium SportRugbyCommonwealth GamesCricketRacingNetballBoxingLeagueFootballSuper RugbyAthleticsBasketballMotorsportTennisCyclingGolfAmerican SportsHockeyUFC
NZH Local FocusThe Northern AdvocateThe Northland AgeThe AucklanderWaikato HeraldBay of Plenty TimesHawke's Bay TodayRotorua Daily PostWhanganui ChronicleStratford PressManawatu GuardianKapiti NewsHorowhenua ChronicleTe Awamutu Courier
Covid-19
Te Rito
Te Rito
OneRoof PropertyCommercial Property
Open JusticeVideoPodcastsTechnologyWorldOpinion
SpyTVMoviesBooksMusicCultureSideswipeCompetitions
Fashion & BeautyFood & DrinkRoyalsRelationshipsWellbeingPets & AnimalsVivaCanvasEat WellCompetitionsRestaurants & Menus
New Zealand TravelAustralia TravelInternational Travel
Our Green FutureRuralOneRoof Property
Career AdviceCorporate News
Driven MotoringPhotos
SudokuCodecrackerCrosswordsWordsearchDaily quizzes
Classifieds
KaitaiaWhangareiDargavilleAucklandThamesTaurangaHamiltonWhakataneRotoruaTokoroaTe KuitiTaumarunuiTaupoGisborneNew PlymouthNapierHastingsDannevirkeWhanganuiPalmerston NorthLevinParaparaumuMastertonWellingtonMotuekaNelsonBlenheimWestportReeftonKaikouraGreymouthHokitikaChristchurchAshburtonTimaruWanakaOamaruQueenstownDunedinGoreInvercargill
NZ HeraldThe Northern AdvocateThe Northland AgeThe AucklanderWaikato HeraldBay Of Plenty TimesRotorua Daily PostHawke's Bay TodayWhanganui ChronicleThe Stratford PressManawatu GuardianKapiti NewsHorowhenua ChronicleTe Awamutu CourierVivaEat WellOneRoofDriven MotoringThe CountryPhoto SalesNZ Herald InsightsWatchMeGrabOneiHeart RadioRestaurant Hub

Advertisement

Advertise with NZME.
Business

Liam Dann: The new oil shock

30 Nov, 2014 04:00 PM4 minutes to read
Photo / Getty

Photo / Getty

Liam Dann
By
Liam Dann

Business Editor at Large

VIEW PROFILE
Spectacular fall in oil prices will bring short-term economic gains but may hinder growth of green technologies.

The world is in the grip of a new oil shock. The shock is that prices are collapsing.

Last week crude oil dipped briefly below US$70 a barrel. That's about one-third cheaper than in June. Prices are back at levels not seen since September 2010, when demand was still in a post-GFC slump.

The big reason is that US production is going through the roof.

Never mind President Barack Obama's big talk about green technology and carbon emission targets, America has fracked its way to the verge of energy self-sufficiency. It is becoming clear that this will have enormous economic and political ramifications.

Advertisement

Advertise with NZME.

The controversial practice of fracking - effectively squeezing the last drops of oil and natural gas out of the ground by pumping chemical solutions into the earth at high pressure - has rapidly restored the US as a fossil fuel superpower.

America has doubled its oil production in less than a decade and is not alone - Canada and Russia are using fracking to boost production.

There is plenty of bullishness about this in the US. Energy research group Platts speculated in October that the fracking revolution could see the US top Saudi Arabia as the world's largest oil producer by 2020.

Although the growth curve is that steep, it is a big call.

The Saudis and other Opec nations were prepared to bet against it last week in a move that pushed the price even lower. Rather than cut production now to prop up the plunging oil price, Opec has decided to keep pumping and take the financial hit in the hope that fracking's higher cost of production will render it uneconomic.

That's the long game. For now the net effect is that global oil prices have plunged. And that equals a massive stimulus for the US economy right when it needed it.

Related articles

Entertainment

Paul Casserly: Cable news puppet shows

09 Nov 10:00 PM
Business

Finance law reform focuses on investors

30 Nov 04:00 PM
Business

Petrol prices tipped to fall to $2

01 Dec 07:14 PM
New Zealand

How much are you paying for petrol?

01 Dec 10:49 PM

All of us are going to be reaping the benefit of fracked oil - regardless of how guilty we might feel about the environmental hypocrisy.

Opposition to fracking has been intense and high profile in the US. The oil industry will argue it's safe but the bottom line is that injecting highly toxic chemicals into the ground involves some risk. The industry is only ever one major environmental disaster away from tipping political support against it.

Advertisement

Advertise with NZME.

But for now the frackers are winning. There isn't a much more powerful influencer of US consumer sentiment than the price of filling up the car.

Meanwhile, lower oil prices are a mixed blessing for New Zealand. There is upside in anything that gets the US economy humming. A rising greenback will see our currency fall in relative terms, boosting export earnings.

The lower importing power of the Kiwi dollar will be offset as we experience the direct benefit from lower international oil prices. Oil is our single biggest import expense.

In the BNZ's latest Economy Watch report, economist Doug Steel crunches the numbers. Petroleum and products, at about $8 billion, account for around 16 per cent of New Zealand's annual merchandise import bill. So a sustained 25 per cent price drop would equate to a significant $2 billion annual saving.

You then have to weigh that against New Zealand's crude oil exports, Steel notes. These aren't insignificant at about $1.5 billion over the past year. But the difference still works out to an annual net saving of about $1.6 billion, or 0.7 per cent of GDP.

That is the good news. There's a down side.

Advertisement

Advertise with NZME.

Steel argues there appears to be a correlation between oil prices and dairy prices. Oil-producing nations are some of New Zealand's biggest dairy markets. They account for about 17 per cent of our dairy exports.

On balance, lower oil prices won't stop our current account deficit widening, he concludes. But still, in the short term savings will flow directly to the domestic economy as drivers spend less at the pump.

Of course this is all short-term stuff against a historic backdrop of global warming. You needn't be a hardcore greenie to see that this latest fossil fuel surge will cost us - or our children - eventually. You just have to read the science.

It is not just the enormous volume of extra carbon that fracked oil and gas will release. Low-cost oil and gas also send a price signal that risks seriously undermining the funding and development of green technologies.

In the end there will be a price to be paid for the savings we make at the pump this Christmas.

Advertisement

Advertise with NZME.

Latest from Business

Business

OCR hike: First-home buyers being hit by double whammy

17 Aug 05:00 PM
Premium
Business

Aussie baby goods retailer comes to New Zealand

17 Aug 05:00 PM
Premium
Business

Flood risk insurance warning: 'In 10 years' time, who knows?'

17 Aug 05:00 PM
Premium
Business

'Wild West' world of crypto: Kiwi investors need protection

17 Aug 05:00 PM
Premium
Business

Reserve Bank hits back at critics with hawkish statement

17 Aug 05:00 PM

Most Popular

Live: 'Frightening, out of control' - residents tell of dramatic evacuations; Auckland in firing line
New ZealandUpdated

Live: 'Frightening, out of control' - residents tell of dramatic evacuations; Auckland in firing line

17 Aug 05:20 PM
Premium
Shane Te Pou: Not every workplace dispute amounts to bullying
Politics

Shane Te Pou: Not every workplace dispute amounts to bullying

17 Aug 05:00 PM
Premium
Sideswipe: Everyone wants to be the Bing
Entertainment

Sideswipe: Everyone wants to be the Bing

17 Aug 05:00 PM

Advertisement

Advertise with NZME.
About NZMEHelp & SupportContact UsSubscribe to NZ HeraldHouse Rules
Manage Your Print SubscriptionNZ Herald E-EditionAdvertise with NZMEBook Your AdPrivacy Policy
Terms of UseCompetition Terms & ConditionsSubscriptions Terms & Conditions
© Copyright 2022 NZME Publishing Limited
TOP